Prices are rising at their fastest rate since March 2003, led by interest rate hikes and soaring energy costs. Marc Coleman, Economics Editor, reports.
The Minister for Finance Brian Cowen said the increase in the rate of inflation, from 4.2 per cent to 4.5 per cent last month, was due to external factors beyond the control of Government, but added that there was a need for more competition in the services sector, which is contributing strongly to inflation.
Fine Gael finance spokesman Richard Bruton accused the Government of contributing to inflation, while business representatives warned of further deterioration in Ireland's competitiveness, and analysts predicted that inflation would rise further by the end of the year.
The Consumer Price Index (CPI) data published yesterday by the Central Statistics Office (CSO) shows that inflation is now twice the rate prevailing in August of last year and a full two percentage points higher than the 2.5 per cent rate recorded last December. Prices for housing, water and energy products rose by 16.9 per cent in August.
Mortgage costs rose by 33 per cent, reflecting rising interest rates and house price increases, while energy costs rose by 10.8 per cent.
The impact of last month's 0.25 percentage point rise in interest rates has yet to manifest. Analysts have predicted further rate rises - expected as early as October - could push inflation higher still.
Prices of services also rose strongly, by 7 per cent year-on-year, while utility costs and local charges rose by 5.1 per cent. At 5.2 per cent, inflation in the transport sector was also higher than average inflation. In contrast, inflation for goods was considerably lower than the average, at just 1.7 per cent.
Ulster Bank chief economist Pat McArdle said that factors other than energy costs and interest rates were contributing to inflation. According to figures cited by Mr McArdle, core inflation - which excludes more volatile factors such as mortgage repayments and energy prices - accelerated from 1.3 per cent in January to 2.3 per cent in August. He added that the abolition of the Groceries Order could finally be impacting on food prices. "Items subject to the order fell for the third month in succession . . . it appears that the abolition of the order is having some impact with further decreases pencilled in September."
However, Mr Cowen said that rising inflation was mainly caused by higher oil prices and interest rates. "We have no control over these. If these factors were removed, inflation would currently be running at around 2.5 per cent." He added that high inflation in the services sector underlined the need for more competition.
Mr Bruton said that in contrast with goods, inflation in the services sector was significantly higher in Ireland than across the euro zone. "The exposed sectors - clothing, footwear, furniture and communications - of the economy who are delivering goods to the Irish consumer have managed to keep price increases below the rest of the euro zone. The message is clear; a big part of our problem is bad value from Government and the sectors it regulates," Mr Bruton said yesterday. Chief executive of small business lobby group Mark Fielding called on the Government to reduce inflation to "at least" the European average to defend business competitiveness.
